There is an answer to the fiscal cliff: higher taxes on the wealthy (Viewpoint)

The following is a letter to the editor that was sent to the
Kalamazoo Gazette.

BY LINDA TEETER

If you've ever suspected that all the talk of how cutting taxes on the wealthy boosts our economy was just a cover story for allowing the rich to get richer, a new nonpartisan report proves it.

Turns out, there's no correlation between how much the richest Americans pay in taxes and how fast our economy grows.

But there is a strong connection between the level of those taxes and our nation's growing income inequality.

These findings, from the Congressional Research Service (CRS), couldn't have come at a more important time.

Not only were taxes and the economy key issues in this fall's political campaigns, but since election day, Washington has been struggling to steer the country clear of the so-called fiscal cliff of huge and indiscriminate budget changes.

Raising taxes on the wealthy is one sure way out of the crisis, but some politicians are resisting, based on the theory that even modest tax hikes on high-earners would slow economic growth.

The CRS set out to test that theory.

Using sophisticated statistical analysis, its researchers matched up tax rates at the very top of the income scale with the state of our economy since the end of World War II.

In addition to economic growth, they looked at savings rates, investment levels and productivity gains.

In each case, they found that higher upper-income tax rates either had no effect, or even slightly improved the measure under study.

How could that be?

We've been told again and again that higher taxes on the rich would discourage "job creators" and dampen our recovery.

The answer is simple: Our economy is not in fact dependent for its health on a tiny moneyed elite, but rather on the broad middle class.

Or as the report puts it: "It would be reasonable to assume that a tax rate change limited to a small group of taxpayers at the top of the income distribution would have a negligible effect on economic growth."

And the report doesn't even take into account beneficial effects on our economy of the healthier government balance sheet and infrastructure investments made possible by revenue raised from the super rich under a fairer tax system.

While the rates paid by the wealthiest taxpayers have no effect on economic growth, they do contribute directly to the nation's destabilizing income inequality.

Of course, you don't have to be a statistician to figure out that if the ultra rich keep more of their huge incomes for themselves and contribute a smaller portion to the common good – thereby impoverishing the promoters of general prosperity like education and health care – our income divide will widen.

And that's just what's happened.

Average tax rates on the nation's wealthiest households are at the lowest level in 65 years, having declined fairly steadily since 1945.

Over that same period, the average real income of all Americans has about doubled – not a very impressive result for 67 years, and pretty much all of it coming in the first 35 years.

But the results are far sunnier for those at the top.

Income is five times the 1945 level for households in the top one-tenth of 1 percent and eight times higher for the top one-hundredth of 1 percent.

The share of the nation's income flowing to that 0.1 percent of households has gone from 4.2 percent right after the war, to 12.3 percent in 2007.

We can use our new knowledge to reverse these troubling trends.

In the fiscal cliff negotiations at year's end, responsible members of Congress from both parties can strike a budget deal that includes higher taxes on the wealthy, such as allowing the Bush-era tax cuts on households making over $250,000 dollars a year to expire. We are lucky in Michigan that both of our Senators, Stabenow and Levin have been strong leaders on this issue.

We now know such a revenue increase won't hurt the economy.

But it will lower deficits, allow for targeted public investments, and begin to close the income divide that's tearing our country apart.

Linda Teeter is the executive director of Michigan Citizen Action, a statewide advocacy organization with over 10,000 citizen members.